Now that you’ve started to save, you need to consider what to do with your money. Keeping your cash in a savings account may seem safe, but interest rates aren’t very high, and there are many choices out there, depending on your risk profile.
“Watching your savings account balance grow may be satisfying,” agrees Richard Cayne of Meyer International. “But most savings accounts offer around 1% interest – inflation is usually around 3%. In some countries, it’s higher. So, as things stand now, you’re actually losing money with your savings in the long term.”
There are three general risk levels
Investing can be complicated, so let’s start with a simple breakdown of your risk tolerance or appetite. It’s really an indication of how you feel about possibly losing your money. Of course, no one wants to lose money, but in every investment scenario, there is some possibility that you may lose. Even in a savings account, as explained above.
Typically, risk levels are broken down into low, moderate, and aggressive. Low means you want investments that have safeguards against loss, but these are typically lower in their returns, such as bonds or certificates of deposit. Aggressive, or high, risk is the opposite, where you are looking for the highest returns possible, but that does mean higher risk. Moderate is somewhere in the middle.
Three risk levels may seem simple
Of course, there is a lot more that goes into determining where to put your money. But understanding your risk appetite is one of the first steps when it comes to financial planning.
Seeing your nest egg flourish even more through prudent investing can be extremely rewarding, but it stands to reason that you don’t want to lose any of it. All investments involve risk, but with the right guidance and choices, you can come out ahead. An experienced consultant, like Richard, can help you figure out where you stand in terms of risk and how to set up your investment strategy.